Indonesia's stock market plunged to its lowest point in nearly three decades on Friday after global index provider MSCI proposed removing the country from its emerging-market classification, raising the risk of billions of dollars in investment outflows.
The Jakarta Composite Index tumbled 11.57%, marking its steepest single-day decline since January 1998. The sell-off triggered a 30-minute trading halt as investors rushed to exit positions.
The rupiah also weakened by as much as 0.8% to 18,070 against the dollar before recovering some losses, according to Reuters.
MSCI said persistent concerns over market transparency, concentrated share ownership and trading practices made Indonesia's emerging-market status increasingly difficult to justify.
The proposed move to standalone status goes beyond the previously threatened downgrade to frontier-market classification.
Billions In Potential Outflows
A reclassification would exclude Indonesian equities from MSCI's emerging- and frontier-market index products. Funds that track these benchmarks could be forced to sell their holdings, while active investors may also reduce exposure.
UBS estimates the move could trigger around $4 billion in passive investment outflows, with active investors potentially adding another $15 billion. Foreign investors have already sold a net $4.7 billion worth of Indonesian stocks this year.
Indonesia's equity market has lost more than $350 billion in capitalisation since MSCI froze certain index changes in January. Around $60 billion was wiped out on Friday alone.
Also Read | Indonesia Stocks Plunge 11% As MSCI Weighs Standalone Market Downgrade
Regulators Face Pressure Over Market Transparency
The announcement prompted Indonesia's Financial Services Authority to disclose penalties against market participants linked to alleged trading violations involving Dian Swastatika Sentosa, Barito Renewables Energy and Petrindo Jaya Kreasi.
Regulators alleged that Dian Swastatika shares were subject to coordinated price manipulation. In the other two cases, shares allocated through initial public offerings were allegedly intended for parties connected to controlling shareholders, contributing to concentrated ownership.
Senior economic minister Airlangga Hartarto questioned why MSCI had not raised the proposed standalone classification during a meeting earlier this week.
The Indonesia Stock Exchange said it would seek clarification and pointed to measures taken to improve market transparency and integrity.
MSCI Sets 2027 Reclassification Timeline
MSCI will consult market participants until April 2027 before proceeding with the proposed downgrade, unless it sees clear evidence of improvements in market governance and functioning.
The decision adds pressure on President Prabowo Subianto's government, following negative sovereign-rating outlook revisions by Moody's and Fitch earlier this year.
For Indonesia, restoring investor confidence and demonstrating meaningful market reforms will be critical to avoiding a potentially costly index exclusion.
Also Read | MSCI Shares Plummet 11% As Q2 Earnings Miss, Cost Forecast Spooks Investors
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.